Damage caused by coal seam gas mining. Photo: Nick Soon
A moratorium on fracking will remain in place in Victoria until well after the state election. Premier Denis Napthine said the ban on the controversial practice would not be lifted until at least July 2015.
Dr Napthine has released a report examining Victoria's gas supply which recommends lifting the ban on fracking and coal seam gas exploration licences.
The report, by a group chaired by Howard government minister Peter Reith, said residential gas prices were likely to increase by about 30 per cent by 2015, before falling in 2020 to prices 20 per cent higher than now.
It said onshore gas resources discovered in Victoria today were "not likely to be available to meet the predicted transition shortfall, around 2017" because of a long lead time from discovery to production.
Mr Reith has argued that lifting the ban on fracking would put downward pressure on gas prices.
But the report said: "There is currently no production, commercial reserves or identified reserves of unconventional gas in Victoria."
On Thursday Dr Napthine said the report was the first step in the government's "decision-making process" and it would now consult the community before another report was delivered in July 2015.
"We will never, ever allow onshore gas if it jeopardises our underground water, if it jeopardises our environment, and if it jeopardises our food and agriculture production," he said.
He said legislation would be introduced to ban the use of BTEX chemicals in Victoria.
The government faces growing pressure to open up Victoria to onshore gas but the issue threatens to sever the Coalition.
Coal seam gas is a sensitive issue for Coalition MPs in rural seats where concerns have been raised about the groundwater contamination and the impact on agricultural land.
Dr Napthine said exploration licences would be able to go ahead as long as they did not affect underground water, the environment and food production.
"There are ways to do exploration through modern technology that have no impact on any of those matters."
He said Victoria had enormous offshore gas supplies and there would be no onshore gas industry until it was "absolutely safe".
The report said the onshore gas industry should not be developed in Victoria until a package of reforms was adopted, including community consultation, regulation and information and science to underpin the management of the industry.
It also recommended the government appoint a gas commissioner and adopt a royalty rate to create incentives for industry to explore and develop onshore gas.
It said a "royalty for the regions" program should be adopted so the benefits of natural gas production were shared with the community.